Best Inflation Hedges for Retirees


Hedging against inflation and ensuring that your investments are not rapidly losing value should be high on the list of priorities for any investor, let alone someone near or in the middle of their retirement. Investors around the world are currently in the midst of a troubling period of inflation, which has been ongoing throughout the pandemic and is turning the markets upside down. With that as our backdrop, below are some of the best inflation hedges for retirees right now. 

Income-Producing Equities

Inflation is typically quite bad for the bond market, but the stock market, depending on the assets you are investing in, can end up providing good inflation protection. You want to be able to actively manage your portfolio and your retirement investments either way, but consider looking for equities that provide you with increased cash flow rather than the promise of capital gains. With many analysts and experts highly concerned about extreme overvaluation in the stock market, looking for stable companies that pay consistent dividends might be a better way to protect that retirement portfolio than trying to take advantage of potential gains. 

Another option is to purchase preferred shares. These liquid securities will provide a greater return than most forms of bonds and may not depreciate as much as bonds when inflation occurs. Utility stocks are a third option in which the stock price rises and falls in a reasonably predictable manner over the economic cycle while also paying consistent dividends. Always talk to an investment advisor before making any kind of retirement investment decisions, especially during these times of high market volatility and unpredictability. 

International Markets

Italy, Australia, and South Korea are examples of large economies that do not grow and collapse in lockstep with US market indexes. Adding companies from these or other similar nations to your portfolio might assist in hedging against home economic cycles. Bonds issued by overseas issuers can also give investors exposure to fixed income that may not decline in value if domestic inflation occurs.

While economies all over the world are experiencing inflation, it is a mistake to assume that the rest of the world experiences macroeconomic trends in the same way the United States does. A portfolio with a certain amount allocated to markets outside your home market can be a good hedge against inflation and domestic market turmoil more generally. 

Real Estate 

Real estate is frequently used as an inflation hedge, whether the hard asset itself in the form of land or dwellings or through investments in exposure to the real estate market. One of the most straightforward methods to gain exposure is through real estate investment trusts (REITs), which control portfolios of commercial, residential, and industrial properties. 

They frequently pay greater returns than bonds since they generate revenue through rents and leases. Another significant advantage is that their pricing will likely be unaffected when interest rates begin to climb because their operational costs will stay relatively stable. REITs are often known for paying stable, strong dividends and for being a good investment for those looking for income-generating assets in addition to whatever capital gains the funds enjoy. 

Conclusion 

Inflation is making headlines right now as it continues to make the price of pretty much anything you could care to mention higher. From gas to basic foodstuff, life in countries around the world is only getting more expensive. As each dollar becomes less valuable, you need to look for ways to protect your wealth during retirement. Keep the above inflation hedges in mind and consider allocating some of your portfolio towards wealth preserving assets, rather than wealth-generating ones, at least over the short to mid-term.